These plans are the most popular form of retirement plan. In addition to employee elective deferral contributions, 401(k) plans usually include employer profit sharing contribution features. These plans can be customized for the specific needs of each employer.
Profit Sharing Plans
Most often profit sharing plans are combined with a 401(k) plan, as described above. However, profit sharing plans can also stand alone as a fully employer-funded retirement vehicle. These plans may include advanced plan design features such as new-comparability/cross-testing, age-weighted, integrated with social security, Davis Bacon/prevailing wage plans, etc.
403(b) plans can be sponsored by nonprofit organizations. These plans are similar to 401(k) plans in that they allow for employee elective deferral contributions and employer matching and/or non-elective contributions.
Defined Benefit and Cash Balance Plans
Traditional defined benefit (pension) plans are typically funded by employers and provide a guaranteed (or defined) benefit to employees. Cash balance defined benefit plans are similar to traditional defined benefit plans but provide plan sponsors greater flexibility in design and under conditions of economic volatility.
Employee Stock Ownership Plans (ESOPs)
An ESOP is like a profit sharing plan but it is designed to invest primarily in stock of the company that sponsors the ESOP. An ESOP is often utilized to help with a “buy out” or successor management situation for a business owner looking to divest or sell the business. ESOPs are also a way to create an ownership culture as a tool for tapping employee potential. An ESOP can include 401(k) features, as well, or can operate in conjunction with a stand-alone with a 401(k) plan.
Governmental 457(b) Plans
Governmental 457(b) plans can be sponsored by a state, city, county, or an agency or instrumentality thereof. These plans are similar to 401(k) plans and 403(b) plans in that they allow for employee elective deferral contributions and employer matching and/or non-elective contributions.